Nick Thomas' Blog

If you’ve been following the coverage from the CPS team over the past 12 months you’ll be familiar with the concept of the Media Meltdown - where traditional business models based on scarcity and control of content are fundamentally undermined by the digitization of content. The challenge facing media companies is a grave one: how can they respond to this threat and compete in this challenging new environment?

With this post we are launching a major new project, the conclusion of which will be a new report identifying new paradigms for the content industries, based on adopting best practices from other industries and from historical precedents. But this time, given our focus at Forrester on the importance of social media and the Groundswell, we invite you to contribute to the research process. In this and a series of future postings, including a series of video podcasts, I want to share our thinking on these issues at it emerges from the process of iteration and evaluation – the kind of process which normally happens within the Forrester team. We have a big idea, but in order to develop it into a fully-realised and actionable piece of research, we would like your input.

We start with an observation that has stuck with me ever since I studied film history at university, a reality reinforced when I later worked in the movie industry. Films don’t make profit for cinema owners. Not directly, anyway. As content owners consider ways to force ungrateful consumers to pay for the content they consume, it’s worth revisiting a truism about the cinema, one of the 20th century’s most enduring media businesses. Movies get people into the cinemas, and generate ticket sales. But if you want to make a profit, sell them popcorn.

Let’s go back to the late 1920s. The US cinema industry had grown rapidly and was hugely popular, but the financial crisis of 1929 led to straitened circumstances for many Americans. A model that worked in a boom didn’t work in a dip. The industry went through a series of changes before it emerged as a successful business. To survive, cinema owners did the following:

Innovated the product itself. The content showcased new technology (the introduction of sound, and later colour) made the content more appealing

Innovated the packaging. With users reluctant to spend on seeing one film, the creation of double bills better met the needs of consumers: two films per ticket was closer to the customers’ valuation of the product offering.

Innovated the user experience. Cinemas adopted emerging technologies from other sectors in order to enhance the user experience. Air conditioning, developed for the meatpacking industries of Chicago, was incorporated into US movie theaters, making them much more attractive places in which to spend time.

Created new revenue streams. All of the above helped maintain the appeal of cinemagoing. But it was the final piece of the puzzle – the creation of new revenue streams – which proved to be the most enduring and important legacy. The saviour of the cinema industry turned out to be popcorn.

Popcorn became (and remains) an integral part of the content experience for moviegoers. For cinema owners, it is a minor miracle: once the equipment has been installed, it is cheap to make, with profitability of more than 95%. And it drives yet further revenues, with salty popcorn driving consumers to purchase drinks. So while the content gets people into cinemas, with ticket prices covering costs, it’s the popcorn that creates the profits.

What does this mean for other industries? We’ll be looking at ways in which content-based companies can create new revenue streams around content, not just from content itself. The paywall models much in vogue with certain publishers assume that because the content is expensive to create, it should be what the consumer pays for. But in order to survive, those media companies should be focusing on popcorn, not paywalls.